Company Attributes and Cross Section of Stock Returns in India

Abstract

Beta is a widely accepted measure of systematic risk. While early tests in international markets and the Indian stock market found that beta was able to explain variations in return, subsequent studies found that other variables were also important. This paper relates stock returns to the underlying behaviour of beta and five company attributes size, earnings yield, cash earnings yield, dividend yield and book to market ratio. Analysis of 158 stocks listed on the Bombay stock exchange from 1991–2002 and sub periods shows that stock returns are influenced by other variables in addition to the market factor. Beta was positively related to returns while size, E/P, D/P and B/M were negatively related to returns. The study indicates that risk is probably multidimensional and that significant factors vary with the period chosen for empirical analysis.